Korean Gov’t Planning to Merge STX and Sungdong

The South Korean government holds a meeting next month in order to discuss a merger between Sungdong Shipbuilding & Marine Engineering and STX Offshore & Shipbuilding.

At present, STX is being managed by Korea Development Bank (KDB) and Sungdong is being managed by the Export-Import Bank of Korea. Due diligence is currently underway in the shipbuilders by the respective creditor banks. The government is planning to carry out downsizing and the merger based on the result of the due diligence scheduled to become available next month.

KDB has poured 4.5 trillion won (US$4.0 billion) so far into STX, which adopted a voluntary restructuring agreement in April 2013. Nevertheless, STX went into receivership in June last year due to the lack of work and profitability. Although the receivership ended earlier than scheduled last month, the creditors are quite pessimistic about the future of STX. According to KDB, the shipbuilder’s overhead costs overwhelm those of the others in the industry to the point of significantly limiting profits from new contracts.

Sungdong signed a voluntary restructuring agreement with the Export-Import Bank of Korea in April 2010 and more than four trillion won (US$3.6 billion) has been injected into the shipbuilder since then. Things are not getting better though for the same reasons as STX. Its backlog is likely to run out late this year.